Student Loan Information
After you’ve exhausted every scholarship opportunity, you may still require funds to pay for college. Of course you’ll want most of your money coming from scholarships or grants since you won’t have to pay those back, but unless you’ve attained a full-ride scholarship, then you’ll need a loan. So the question is where do you find loans with the lowest interest rates and best terms? Well, let’s take a look at a few federal loans. If you’re in any sort of financial need, a federal loan can provide you with the money you need with terms lax enough that repayment is hassle free. Things like loan forgiveness, grace periods before having to pay and modest interest rates are the main benefits federal loans provide. This page will provide information on loans and ways you can make the most out of what you borrow.
Stafford loans are given by the government to help students pay for college. You have subsidized loans where you don’t have to pay the interest while in school, and unsubsidized where you do. To qualify for a Subsidized Stafford Loan, you must be in financial need. If you’re family makes under $100,000, you should apply for the subsidized Stafford loan; 25% of applicants who have annual incomes between $50,000 and $100,000 will usually get the approved. Otherwise you should apply for the Unsubsidized Stafford Loan which you can defer payment till after you graduate with a 6 month grace period. All federal loan interest rates increase every year on July 1, so you want to apply before that date to lock in a lower rate. Many students borrow both subsidized and unsubsidized from Stafford.
Parent Plus Loan
These loans are for parents or guardians of an undergraduate with a good credit score. You don’t need to fill out a FAFSA to apply or any need-base forms, but it is recommended. The interest rate is fixed for the duration of the loan and you get a discount from the rate if payments are automatically debited from your bank. The interest rate for a PLUS loan is a little higher than Stafford’s, so you’ll want most of your money coming from a Stafford loan, but a PLUS loan is still preferred over money borrowed from private banks.
The Perkins loan is need based with the best possible terms for those in extreme financial need. You’ll find this has the lowest interest rate of all the federal loans; you’ll have a minimum payment of $40 after graduation; and if you plan to teach, you’ll get a percentage of what you borrowed forgiven. They also give you a longer grace period to start repaying (9 months compared to the 6 months you get from Stafford). Again, this is set aside for those who are in a great deal of financial need.
Consolidation and Tax Deductions
If you have more than one student loan, you’ll be able to consolidate those loans and make lower monthly payments over a longer period of time after you graduate. It’ll keep repayment simple by only writing one check and will increase your credit score by limiting the number of accounts open on your report. When you go to consolidate, you’ll get a fixed interest rate that’ll be the weighted average of all loans. Weighted in that the more money you have from a particular loan, the more weight it’ll have on your average. If you’d like to take a look at all your loan information, visit the National Student Loan Data System’s website so you can view amounts and rates.
After consolidating your loans, you might want to look for any tax deductions you might be eligible for. The Student Loan Interest Deduction reduces the interest of those making under $60,000 a year by $2,500. The amount you’re able to deduct will phaseout completely for those making $75,000 a year. Tax deductions reduce the amount of income that is taxable by the government; tax credits are money simply paid back to you. Depending on which tax bracket you’re in, it’s possible to get more money back to you from a tax credit so be sure to research which will pay you back the most before taking a tax break because only one can be taken a year. College Money Advice has more information on tax credits.
Tips for Deciding on Student Loans
Before you take out a student loan, if you’re deferring payments till after graduation, it’ll be good practice to start budgeting now so you won’t be surprised later. It’s easy to just receive the money lent to you and forget that eventually you’ll have to pay it back. You’ll want to know how much you’ll need monthly, so you won’t borrow too much. Creating a budget and viewing your spending habits will help you decide how much money you’ll need to borrow. Practicing wise money management habits should diminish any issues paying off your student loan.